How to Prepare Yourself to Get Your Offer Accepted
In today’s market, many of my clients have had to face back to back multiple offer situations, which are often difficult to win. Typically, we will have to write three offers for each of our clients before they finally win a bid. That’s just the nature of the very competitive market here in Minneapolis.
The newest numbers just came out from the Minneapolis Area Association of Realtors, and right now we only have a 1.4 months’ supply of homes available for sale. This is down over 30% just from last year. To put it in perspective, in 2008 right before the market crashed, we had a 9 months’ supply of homes available, and in an average market there is about a 5 months’ supply of homes. So inventory is extremely tight, and that is why we are seeing so many multiple offers on homes; if the property is good and not over-priced, then there will be many interested buyers and competition will rise.
This is both good news and bad news. The bad news is that it makes it very difficult to get a good property, but the good news is that supply and demand imbalance will most likely not change for awhile, so it will take some time before we get back up to a 4-5 months’ supply. This makes investing in the Minneapolis area probably pretty safe. Granted, we could have some unforeseen economic problem that affects demand, but barring that, it will take some time to recover.
With that being said, if your intent is to get a good property for a fair price, the question becomes: how do you do that? From my experience selling almost 250 homes over the past 3 years and writing over 650 offers for clients, here are what I think are the best strategies to win in multiple offers:
Be 100% prepared. Moving forward, are you going to do cash financing or are you going to do a mortgage? If it is cash, then you have to have a POF (proof of funds) ready at almost any time. A good property could come up any day, so if you are going to make a cash offer, you need to be able to prove you have the money, and you need to be able to do it quickly. So having bank statements or a letter from your brokerage or banker is critical. Similarly, if you are doing a mortgage, you will need that pre approval letter on hand. The fact is that other buyers are going to have a POF or pre approval letter available, and the ones who do have that are the ones who will get the property. We are in a competition and we need to treat it as such; that means being prepared.
Get with a good lender. Whatever lender you decide to use must to be able to send out an official pre approval letter whenever needed. The letter needs to have the property address, they type of loan you are doing, down payment amount, lender contact information, and any other pertinent information. Again, this goes back to being in a competition; if other buyers supply pre approval letters and you do not, the sellers have to decide which offer to take, and chances are they will pick the offer with all the normal expected paperwork rather than an offer that has something close to it but is still missing some items.
Increase your earnest money. If you do an inspection, your earnest money is 100% refundable during the inspection period and you can cancel for any reason (this is typically 7-10 days). Most people put down 1-2% of the asking price, but whether you do $1,000 or $10,000 or $100,000, it’s all the same. In fact, I often suggest doing 5-10%. Why not? If you are putting down up to 40% for your down payment, that earnest money is going towards your down payment anyways, and if you do decide to cancel during inspection, you get the money back. Put yourself in the seller’s shoes - if you have two offers and they are very similar in price and terms, but one has a $20,000 deposit and the other only has a $2,000 deposit, which one would you choose? The buyer willing to write a check for $20,000 is probably more serious.
Decline an inspection. I am not necessarily recommending this, as inspections are incredibly important; however, not doing an inspection is an option that sometimes wins clients a bid. It happens quite a lot, and if a seller has an buyer willing to waive an inspection, that means they have to spend less time negotiating and can close quicker.
Get a co-borrower. Occasionally, we will have situations where a portion of the purchase price is financed while another portion is being gifted in cash from a relative. This is a great set up and completely valid; however, sometimes when sellers see an offer for $300,000 with a pre approval for only $125,000 (even when the difference of $175,000 is being supplied in gift funds), that can cast doubt on the qualification of the buyer. Of course, this is not the case at all, but sometimes having a co-borrower on the loan and presenting a fully pre approved purchase price (in this case, $300,000) can look stronger.
Cash is king. If there is any way you are able to purchase a property in cash - even if a relative is purchasing it for you, then refinancing it post-sale back to you - then I always suggest going that route. If you can offer $200,000 cash or whatever the case may be, and then refinance after your purchase and get 80% of your cash back, then that is the same as doing a loan up front. If you can pay with cash, then you have an advantage against most of the market. Granted, there are a lot of cash buyers out there, but to a seller, cash is always a safer bet than relying on the process of financing a loan.
I’ve just gone over a lot of information, and I hope it’s helpful when you’re considering making an offer in this competitive market. If you are able to do even one of these suggestions, your chances of winning that home are absolutely increased. It’s a tough world out there and multiple offers will happen. Just know that with some practice and trial and error, you’ll get the best house out there for you.